When purchasing a car, there are many things to consider. How much can you afford? Where is the best deal for financing? How much deposit, if any, should you save? Perhaps one of the biggest decisions though is whether to buy new or used.
Here are 7 things to consider when deciding between purchasing a new or used car.
A new car loses up to 10% of its value the second you drive it off the lot and up to 40% of its value within the first three years. Look at the lifetime of your loan, and what a similar car will re-sell for when you plan to sell (eg. three years, five years, 10 years).
If you are planning to keep the car only a few years, you will likely get more money for a newer model when you decide to sell. The longer you keep the car, often the less the year model matters to the resale value.
2. Interest rate
Typically, lenders will give a lower interest rate to loans for new cars. In general, the older the car is the higher the interest rate is.
If buying from a used car yard or dealership, the dealer may have discretion to charge you a higher interest rate than they receive from the lender, so you may have some negotiating power to bring them down. Always research options with non-dealer lenders (credit union, building society, specialist finance broker) to ensure you get the best deal. Interest rate fees and charges do stack up, and can end up costing you thousands. Do your homework before you commit.
It makes sense that new cars are less likely to break down, because, well, they’re new. If they do happen to have an issue, you are covered by a warranty through the dealer. Standard new car warranties usually cover three to five years, or 60,000km to 100,000km according to RACQ. That is a comfortable period for you to sort out any issues with your new car.
Buying a new car means you’ll have next to zero kms on the odometer. However, there are many well-maintained, quality used cars out there for the buying. (There are also a lot of lemons too…)
Tip: Do your research
If considering purchasing your car through private sale, be sure to do the relevant PPSR check (which stands for (Personal Properties Security Register, but you’ll likely hear it called a ‘PPSR check’ – more on that here) and have a mechanic run their eyes over the vehicle. The savings you make in the purchase of the used vehicle can quickly be depleted by unexpected repairs and maintenance.
Part of cars becoming smarter is cars becoming safer. Safety features improve each year, so in general a new car will include more safety features like air bags and accident avoidance systems like auto emergency braking (AEB), active lane keep assist (LKA) and intelligent speed assist (ISA). Some older cars don’t even have air bags. Check out RACQ’s used car safety ratings.
6. Fuel economy
Car manufacturers are making consistent improvements in the way of fuel economy and vehicle efficiencies. While a used car may offer a lower purchase price, it may cost more to keep on the road (fuel, as well as costlier insurance and servicing). Consider the km/L of your two options to get a better understanding of what each car will really cost you.
7. Bells and whistles
Cars these days are much more than a vehicle to get you from A to B. Today, vehicles may include technology features like driver/parking assist, blue-tooth phone connection, SMS, rear-view cameras and sensors and infotainment like movie screens.
Tip: Consider ‘old’ new stock, or should that be new old stock?
If you’ve found the car you want, but it’s only just beyond your budget, look at ‘old stock’ of the new car you like for potential savings. Sounds like an oxymoron, right? But it isn’t. If the car you like has just released a 2018 model, look at the 2017 models still at the dealership. That model is considered ‘old stock’ even though it’s still a brand spanker. Compare the fuel economy and other specs between the two models. You may be better off buying the ‘old stock’. If you are planning on keeping your car only a few years, the newer model may give you better resale prospects.
NOTE: Demonstrator vehicles are not the same as last year’s model. Demo vehicles are the cars used to show potential buyers how the vehicle drives, so they usually have a few thousand kms on them. This is, in effect, a used car with a reduced warranty.
Tip: If looking at a near-new car, you may still be eligible for a new car loan!
Some lenders recognise that near-new cars as new cars when it comes to finance, such as Queensland Country Credit Union’s New Car Loan which covers cars up to three years old (the car’s age is determined by its build date), up to $75,000, with no deposit required. Oh, and no penalty for early repayments.